Budget Deficits: Alesina and Output Cost

budget deficits: Now, with fellow economists Carlo Favero and Francesco Giavazzi, Alesina has written a new book titled Austerity When It Works and When It Doesn't, which recently received a favorable review from his Harvard colleague Kenneth Rogoff, according to Global Times China. New book, old tune. Back in 2010, Alesina told European finance ministers that many even sharp reductions of budget deficits have been accompanied and immediately followed by sustained growth rather than recessions even in the very short run. The authors' conclusion, in a nutshell, is that in certain cases the direct output cost of spending cuts is more than compensated for by increases in other components of aggregate demand. Alesina's previous work in this area with Silvia Ardagna was criticized by the International Monetary Fund and other economists for its faulty econometrics and exaggerated conclusions. The implication is that austerity - cutting the budget deficit, not expanding it - may well be the right policy in a recession. (news.financializer.com). As reported in the news.